Executive Summary / Key Takeaways

• Ascend Wellness Holdings is executing a strategic pivot under new leadership, focusing intensely on operational efficiency, cost reduction, and retail densification to counter industry headwinds like price compression.
• Despite a year-over-year revenue decline in Q1 2025, the company maintained its adjusted EBITDA margin around 21% due to realized cost savings and improved working capital management, achieving its ninth consecutive quarter of positive operating cash flow.
• Key strategic initiatives include expanding the retail footprint by 50% (targeting 10 new doors in 2025, weighted to H2), increasing vertical sales of higher-margin in-house brands, and implementing automation across cultivation and production facilities to lower COGS and improve consistency.
• The company is investing in technology to enhance the customer experience through a new e-commerce platform leveraging AI/ML and optimizing in-store kiosks, aiming to drive transaction volume and basket size.
• While facing significant risks from federal illegality (280E tax burden, MedMen litigation) and intense competition from larger, more efficient MSOs, management believes its asset base, strategic execution, and focus on cash generation position it for improved performance in the second half of 2025.

Setting the Scene: A Multi-State Operator's Strategic Pivot

Established in 2018, Ascend Wellness Holdings, Inc. operates as a vertically integrated multi-state operator within the dynamic U.S. cannabis industry. Headquartered in Morristown, New Jersey, the company's core business spans the cultivation, manufacturing, and distribution of cannabis consumer packaged goods, serving customers through its own retail dispensaries and third-party licensed stores across seven states: Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio, and Pennsylvania. Ascend's historical growth has been significantly shaped by strategic acquisitions and partnerships, building a foundational asset base in limited license markets. This expansion laid the groundwork for its current strategic focus: optimizing these assets for enhanced profitability and sustainable cash flow generation amidst an evolving market landscape.

The broader U.S. regulated cannabis market continues to grow, with Flowhub reporting sales surpassing $31 billion in 2024 and projecting a 12% increase in 2025, driven partly by a shift in consumer demand, particularly among younger demographics seeking alternatives to alcohol. However, this growth occurs within a challenging environment marked by increasing competition and persistent pricing pressure across many state markets. Recognizing these dynamics, Ascend's new management team, in place since late 2024, has initiated a strategic pivot, prioritizing operational efficiency, aggressive cost reduction, and a renewed focus on the customer experience to strengthen the company's financial resilience and bridge the profitability gap with its larger MSO peers.

Building the Foundation: Operations, Technology, and Verticality

Ascend's operational backbone consists of cultivation, manufacturing, and a growing retail footprint, all aimed at driving vertical integration – selling company-produced products through its own stores to capture higher margins. The company operates cultivation facilities with a total canopy of 255,000 square feet, focusing on improving yields, potency, and consistency, exemplified by achievements like a 44% THC level for a strain in Illinois. Management is making targeted investments to enhance these capabilities, including launching new flavorful, high-THC strains and refining production processes.

A critical component of Ascend's strategy to improve efficiency and lower costs is the implementation of automation. Following a successful pilot program at its Athol, Massachusetts facility for processes like flower packing, vape filling, and pre-roll automation, the company has decided to roll out these automation lines across its network by the end of 2025. The stated goals of this initiative are to drive increased production throughput, reduce labor hours, and unlock lower costs of goods sold (COGS). Management is measuring labor savings and reports they are tracking in line with expectations, indicating the potential for tangible efficiency gains as the rollout progresses.

Beyond production, technology is also being leveraged to enhance the customer experience and drive retail performance. Ascend is transitioning to a new e-commerce platform utilizing AI and machine learning to personalize the online shopping experience, streamline product selection, and integrate a new tiered loyalty program. Early results from the e-commerce pilot showed promising metrics, including a 6.9% increase in order volume, a 7.7% rise in revenue per user, and a significant 50% drop in order abandonment. Optimized interactive kiosks in stores are also contributing to a better in-store experience and higher average order values compared to walk-in orders. These technological investments are designed to deepen customer engagement, improve retention, and strategically position products to boost sales and AWH brand penetration.

Strategic Densification and Brand Building

A core tenet of Ascend's growth strategy is retail densification in its key markets. The company aims to increase its retail footprint by approximately 50%, targeting 20 new doors in the medium term, with 10 expected to come online by the end of 2025, weighted towards the second half of the year. This expansion focuses on securing prime, high-traffic locations in states where Ascend already has significant cultivation capacity, thereby increasing opportunities for vertical sales and improving overall margins. The company is actively pursuing partnership opportunities with social equity license holders, viewing this model as mutually beneficial and a key avenue for expansion, particularly in New Jersey and Illinois where several partner locations have recently been added or are in development.

Alongside retail expansion, Ascend is focused on strengthening its brand portfolio and increasing the penetration of its in-house brands in both its own stores and third-party wholesale channels. The company's brands, including Ozone, Simply Herb, Effin', and the newly launched High Wired, are gaining traction, with AWH brands collectively ranking as the #2 brand house across Illinois, New Jersey, and Massachusetts combined, and Ozone holding the #1 position by sales and units in these markets. Product innovation is central to this effort, with 100 new products launched in Q1 2025 contributing $6.8 million in retail revenue, and 156 new SKUs planned for Q2. This strategic emphasis on developing and selling higher-margin in-house brands is crucial for improving profitability in the face of market price compression.

Financial Performance and Liquidity

Ascend's financial performance in the first quarter of 2025 reflects the impact of ongoing market headwinds alongside the initial benefits of its strategic pivot. Net revenue for Q1 2025 was $127.997 million, a 10% decrease compared to $142.410 million in Q1 2024. This decline was primarily attributed to increased competition and pricing pressure in legacy markets like Illinois and New Jersey, partially offset by incremental revenue from new acquisitions, partnerships, and the transition to adult-use sales in Ohio.

Gross profit decreased to $39.561 million in Q1 2025 from $52.037 million in the prior year period, resulting in a lower gross margin of 30.9% compared to 36.5%. This margin contraction was driven by the competitive pricing environment and a shift towards a heavier wholesale mix, although it was partially mitigated by $1.3 million in lower inventory write-downs compared to Q1 2024.

Operating expenses saw a significant reduction, with General and administrative expenses decreasing by 25% to $37.075 million, primarily due to a $7.95 million decrease in compensation expense (reflecting strategic streamlining and lower equity-based compensation) and the absence of certain prior-year reserves.

Despite the top-line and gross profit pressures, Ascend maintained its adjusted EBITDA margin at 21.1% in Q1 2025, a modest decrease from 22.8% in Q1 2024. This resilience is largely attributed to the impact of cost savings initiatives implemented in late 2024, which helped offset the decline in adjusted gross profit. The company reported a net loss of $19.258 million in Q1 2025, compared to a net loss of $18.163 million in Q1 2024. Interest expense increased by 31% to $11.190 million, reflecting a higher weighted-average debt balance and interest rate (11.5% in Q1 2025 vs. 9.5% in Q1 2024) following recent financing activities. The company's income tax expense remains substantial due to IRC Section 280E limitations, recording $11.031 million in Q1 2025, representing a high effective tax rate on gross profit.

Ascend ended Q1 2025 with a strong cash position of $100.034 million, an increase from $88.254 million at year-end 2024. The company generated $5.939 million in net cash from operating activities, marking its ninth consecutive quarter of positive operating cash flow, driven by improved working capital management. Net cash used in investing activities was $7.847 million, primarily for capital expenditures ($6.423 million) and acquisition payments ($1.018 million).

Net cash provided by financing activities was $13.688 million, largely from the issuance of $15 million in additional senior secured term notes in January 2025. The company's debt structure includes $250 million in 12.75% senior secured term notes due 2029 (including the $15M issued in Jan 2025 and $50M issued in May 2025) and a remaining $60 million under the 9.5% 2021 Credit Facility due August 2025. The company was in compliance with its debt covenants as of March 31, 2025.

Competitive Landscape and Positioning

Ascend operates in a highly competitive U.S. cannabis market dominated by larger multi-state operators like Curaleaf (CURLF), Green Thumb Industries (GTBIF), Trulieve Cannabis (TCNNF), and Cresco Labs (CRLBF). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, AAWH holds an estimated 5-7% aggregate market share. Compared to these larger rivals, Ascend generally lags in overall scale and profitability margins. For instance, AAWH's TTM EBITDA margin of 9.32% trails behind competitors like GTBIF (~33%), TCNNF (~26%), CRLBF (~23%), and CURLF (~28%). This margin gap highlights the operational efficiency advantages enjoyed by larger players through greater economies of scale in cultivation, manufacturing, and distribution.

However, Ascend possesses distinct strengths that inform its competitive positioning. Its strategically located retail footprint consistently delivers industry-leading average revenue per dispensary, demonstrating an ability to identify and operate high-performing locations. The company's vertical integration provides a cost advantage by enabling it to sell its own products directly to consumers, capturing a higher margin than wholesale. While its operational processes may be less efficient than the most technologically advanced rivals (e.g., Green Thumb's automation), Ascend's investments in automation are specifically targeted at closing this gap and improving throughput and cost structure. Furthermore, Ascend's focus on cash flow generation relative to its size and its adaptability in pursuing partnership models offer resilience in a capital-constrained and rapidly evolving regulatory environment. The company's brand strength in key markets, with Ozone and Simply Herb holding leading positions, provides a competitive edge in capturing consumer preference despite intense competition on price.

Risks and Challenges

Despite strategic progress, Ascend faces significant risks inherent to the U.S. cannabis industry. The federal illegality of cannabis under the Controlled Substances Act creates ongoing uncertainty regarding enforcement and limits access to traditional banking and financial services. The burden of IRC Section 280E severely restricts deductible business expenses, resulting in a high effective tax rate and impacting profitability and cash flow. Ascend has a substantial uncertain tax liability of $163.048 million related to its tax positions under 280E, including accrued interest and penalties, and is subject to examination, posing a potential financial risk.

Intense competition and persistent pricing pressure across key markets remain a significant headwind, impacting revenue and margins. The company's accumulated deficit and net loss raise substantial doubt about its ability to continue as a going concern, although management believes its current cash position and operating cash flow generation alleviate this for the near term. The ability to raise additional capital on favorable terms, if needed, is not assured. Furthermore, ongoing legal proceedings, such as the MedMen (MMNFF) NY litigation, which involves a $9.117 million reserve for amounts the company is seeking to collect, represent potential financial and operational distractions.

Outlook and Strategic Execution

Management anticipates that the second half of 2025 will mark a ramp-up phase for Ascend, driven by the scaling of strategic initiatives implemented since late 2024. The outlook is predicated on the full realization of the $30 million in annualized cost savings, particularly as lower-cost inventory produced with improved efficiencies cycles through. The planned opening of 10 new retail doors in 2025, heavily weighted towards the latter half, is expected to increase vertical sales, improve the revenue mix, and help offset ongoing pricing pressures.

Further contributions are expected from the rollout of automation across the network by year-end, which should drive operational efficiencies and lower COGS, and the full implementation of the new e-commerce platform and loyalty program to enhance customer engagement and boost sales. While management expects Q2 2025 revenue to remain steady and Q1 2025 saw a mid-single-digit sequential revenue decline, they anticipate maintaining adjusted EBITDA margin around 20% in Q1 2025 and look for gains in both top-line and margin in the second half of the year. The company's capital expenditure plan of $30 million to $35 million for 2025, primarily focused on new store builds and operational enhancements, is expected to be funded by cash flows from operations, supporting the growth trajectory.

Conclusion

Ascend Wellness Holdings is navigating a complex and competitive U.S. cannabis market by executing a focused strategic pivot. The company's core investment thesis centers on leveraging its established asset base and vertical integration through operational rigor, cost optimization, and targeted retail expansion. Despite facing near-term headwinds from price compression and competition, Ascend's ability to maintain adjusted EBITDA margins and generate positive operating cash flow in Q1 2025 underscores the initial effectiveness of its cost-saving initiatives and improved working capital management.

The planned acceleration of new store openings, the rollout of automation technology, and the emphasis on higher-margin in-house brands are critical components of the strategy to drive profitability and close the margin gap with peers in the second half of 2025. While significant risks persist, particularly regarding federal regulation and intense competition, Ascend's disciplined approach to capital allocation, including share repurchases and strategic investments, aims to enhance shareholder value. Investors should closely monitor the execution of the company's strategic initiatives, the impact of new store openings and automation on financial performance, and broader market and regulatory developments as key indicators of Ascend's path toward sustainable growth and profitability.